Tesco
had been one of the most successful organizations, for almost two decades,
under retailing sector in the world, with a well establishing Clubcard-based
loyalty scheme and the development of a strategic Customer
Relationship Management (CRM) programme
that have provided Tesco with the basis for true customer insight along with
greater brand engagement. In 2011, however, the company began
to suffer because of more competitive environment and a series of internal
pressures, etc. In 2012, it had issued its profit warning for
the first time in 20 years and also saw £5 billion to be wiped off its market
value.

At
the beginning of the 1990s, the company’s management team had started noticing that the key to future success does not just
lie in pursuing a very aggressive and innovative strategy of growth, but also,
it must be based on getting even more close to its customers. It
was this strategy that led to the development of Tesco of what has been proven
to be one of the world’s most successful and the largest CRM
initiatives. Based on the company’s
statement of its core purpose of creating ‘value
for customers and to earn their lifetime loyalty’,
the CRM was seen by many as a model of best practice.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

The
CRM initiative

Tesco’s
m­ove into CRM (customer relationship management)
began in the early 1990s when the company had started working with Dunnhumby
which is a marketing services firm and led to the preliminary test launch of a
loyalty card scheme in six stores in late 1994. The
move was driven by such type of awareness programme in
other parts of the world and also by the results of some analysis which was
done that highlighted two important facts:

 1. In many of their
stores, their top 100 customers in the list were worth as much as the bottom
4000 in terms of sales.

2. The
top 5% of the company’s
customers accounted for 20 percent of sales, while the bottom 25% accounted
for just 2 percent. The scheme, which was underpinned with a major
launch to the staff and the distribution of 140,000 educational videos, is
based upon the Clubcard of Tesco which rewards customers by providing them one
loyalty point for every £1 spent in the company. These
points can be then redeemed either for products that are available in the store
or within a wide range of other organizations including hotels, museums, zoos, leisure
attractions, holiday, travel companies, and also restaurants.

 

This
Clubcard scheme, however, which had been rolled out to twelve of Tesco’s
markets by 2012, was always much more than a simple customer reward programme.
The company had focused upon firstly capturing, secondly analyzing and thirdly,
the most importantly, using the data and information generated by the 12
million plus transactions made each week from the outset. The
starting bit for this involves that each of their transactions being linked to
every single individual customer profiles. Then, Data mining
techniques are used to pinpoint where and when purchases are made, the types of
products which have been bought and the amount of money that customers have
spent. Then, these purchasing behavior and habit
patterns are used as the basis for customers’ segmentation
on the basis of their need and also for targeting them with tailor-made
advertisements and campaigns, as well as regular mailings of a mass-customized
magazine related to offers given by Tesco, and third-party
ads.

 

Internally,
the information which is generated is used by the company’s
management teams as the basis for taking many decisions about:

·       New product development:

For example, Tesco’s
Finest was launched when some analysis suggested that some of its customers
were defecting to Marks & Spencer (M)
for higher quality foodstuffs;

·       Inventory management;

·       The day-to-day
management of their total product range

·       Pricing strategies that more accurately meet
the price sensitivities and needs of different target groups;

·       Measures of media and promotional
effectiveness;

·       Targeted communications (20
percent of Tesco’s coupons are redeemed against its
industry’s average of 0.5
percent);

·       Merchandising:

 The product portfolio is based on detailed
insights of the customer profiles and their purchasing patterns;

·       Promotions, with greater rewards were being
offered to its loyal customers;

·       Customer acquisition:

Done by matching
new products such as the launch of Tesco.com and the entry to financial
services to specific customer types; and

·       Levels of customer service:

Greater attention
being paid to the stock levels and promotions being done on those products
bought by loyal customers.

 

But
Tesco uses the information that the Clubcard generates as the basis for its decisions
to be made, for instance, about how best to manage the business, also the
company uses this as a means of generating additional revenue for them by
selling to their suppliers the sales and promotional performance of their
various brands.

 

In
commenting in 2012 on the success of the Clubcard, Terry Leahy suggested that
amongst the biggest benefits was their way where they would allow the retailers
to treat their customers as individuals and, through its mailings, etc. gave
customers a sense of recognition. “They loved that
they were known”, he suggested.